MASTER 
NEGATIVE 

NO.  95-82442- 1 1 


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Author: 


Title: 


Instructions  to 
accountants  attached  to 

Place: 

Washington,  D.C. 

Date: 

1917 


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00UUM8/A  UNIVEH 

INSTRUCTIONS  TO 
ACCOUNTANTS 

ATTACHED  TO 

COST  ACCOUNTING  SECTION 

FINANCE  DIVISION 

OFFICE  OF  THE  CHIEF  OF  ORDNANCE 

WAR  DEPARTMENT 


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JULY  11,  1917 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

1917 


3^G.O 


Columbia  Wlntijtviitp 


LIBRARY 


School  of  Business 


No.  1623 


INSTRUCTIONS  TO 
ACCOUNTANTS 

ATTACHED  TO 

COST  ACCOUNTING  SECTION 

FINANCE  DIVISION 

OFHCE  OF  THE  CHIEF  OF  ORDNANCE 

WAR  DEPARTMENT 


JULY  11,  1917 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

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CONTENTS. 

Paragraphs. 
General  instructions i_  22 

'Instructions  in  use  of  summaries 7 .  .77777777. 23-  32 

Instructions  in  use  of  public  voucher,  Form  No.  325 33-  37 

Direct  labor 3g_  4^ 

Direct  materials 47.  gg 

Material  fumished  by  United  States 54-  §9 

Scrap,  defective  and  spoiled  material 70-  74 

Factory  overhead  expense 75.  7g 

Administrative  and  general  expense 79-  go 

Special  purchases  for  increasing  faciKties gi-  g7 

Auditing  freight  bills gg_  gg 

Discounts. ^  ^     ^ 

Instructions  in  use  of  analysis  sheets,  Form  No.  1610 91-104  ^\ 

Analysis  of  direct  labor iqq  I 

Analysis  of  direct  material 101  ! 

Analysis  of  overhead  expense 102-103    I 

Analysis  of  administrative  and  general  expense 104  / 

Chart  of  accounts 105-109 

Ordnance  inspectors 110-113 

Accountant's  stationery  and  supplies 114-120 

(8) 


,# 


\ 


; 


9 


« 


INSTRUCTIONS  TO  ACCOUNTANTS. 


GENERAL  INSTRUCTIONS. 


1.  The  following  instructions  are  prepared  by  order  of  the  Chief 
of  Ordnance  for  the  use  and  guidance  of  accountants  attached  to  the 
office  of  the  cost-accounting  section,  finance  division,  who  will  be 
assigned  to  audit  accounts  of  contractors  manufacturing  articles  con- 
tracted for  by  the  United  States. 

2.  Accountants  so  engaged  shall  be  responsible  to  and  report 
directly  to  the  officer  in  charge  of  the  cost-accounting  section,  and 
they  must  keep  in  mind  at  all  times  that  their  single  mission  is  the 
auditing  of  accounts  pertaining  to  the  cost  of  contracts  for  the 
United  States,  and  shall  under  no  circumstances  whatsoever  make 
suggestions  or  enter  into  any  discussion  with  contractor  or  his  repre- 
sentatives pertammg  to  any  other  features  of  the  contracts. 

3.  Where  more  than  one  accountant  is  engaged  in  connection  with 
such  work  at  the  office  of  the  contractor  the  officer  in  charge  of  the 
cost-accounting  section  will  designate  the  "  accountant  in  charge  "  and 
his  assistants.  Such  assistants  shall  be  responsible  to  the  accountant 
in  charge  during  such  assignment. 

4.  Accountants  assigned  to  work  on  contracts  shall  not  leave  the 
place  assigned  to  them  unless  authorized  to  do  so  by  the  officer  in 
charge  of  the  cost-accounting  section. 

5.  Accountants  shall  not  under  any  circumstances  accept  gifts, 
gratuities,  or  make  purchases  either  at  cost  or  at  regular  prices  from 
contractor,  his  agents,  or  his  employees. 

6.  All  communications  pertaining  to  the  work  shall  be  addressed 
as  follows : 

Chief  of  Ordnance, 

War  Department, 
Washington,  D.  C, 
Attention  of  Finance  Division — Cost- Accounting  Section. 
Subject 


Sir: 


Note. —  (a)   Restrict  each  communication  to  one  subject  only. 

{b)  Use  franked  penalty  envelopes  for  such  communica- 
tions, 
(c)  Retain  copies  of  all  outgoing  correspondence  and 
attach  reply  thereto  when  received.  Such  corresi>ond- 
ence  is  the  property  of  the  Ordnance  Department  and 
is  subject  to  their  order  at  all  times. 
id)  Number  each  paragraph  in  communication. 

(6) 


7.  The  attention  of  accountants  is  directed  to  the  following  sec- 
tions extracted  from  United  States  Army  Regulations,  1913  (Art. 
LVI,  sees.  732,  733,  and  735) : 

732.  For  authorized  journeys  of  civilian  employees  of  any  branch  of  the  mili- 
tary service  transportation  requests  will  be  obtaned  when  practicable,  but  will 
be  obtained  in  every  case  for  travel  over  bond-aided  railroads. 

733.  Reimbursement  of  actual  expenses  when  traveling  under  competent 
orders  will  be  allowed,  under  the  following  heads,  to  civilians  in  the  employ  of 
any  branch  of  the  military  service,  excepting  the  expert  accountant  of  the  In- 
spector General's  Department  and  those  mentioned  in  paragraph  734.  viz : 

1.  Cost  of  transportation  over  the  shortest  usually  traveled  route,  when  it 
was  impracticable  to  furnish  transportation  in  kind  qu  transportation  requests. 

2.  Cost  of  transfers  to  and  from  railroad  stations,  not  to  exceed  50  cents  for 

each  transfer. 

3.  Cost  of  one  lower  berth  in  a  sleeping  car,  seat  in  a  parlor  car,  or  custo- 
mary stateroom  accommodations  on  boats  and  steamers  when  extra  charge  is 
made  therefor. 

4.  Fees  to  expressmen  and  porters  on  arrival  at  and  departure  from  hotels 
and  stations  not  to  exceed  10  cents  in  each  case  when  the  service  Is  rendered 
in  connection  with  the  transportation  of  baggage ;  fees  for  checking  baggage  at 
stations  and  hotels  not  to  exceed  10  cents  for  each  piece  checked ;  and  fees  to 
sleeping-car  and  parlor-car  porters  not  to  exceed  25  cents  per  day,  or  10  Cents 
when  the  car  is  used  in  daytime  only. 

5.  Cost  of  meals,  including  tips,  not  to  exceed  $4.50  a  day  while  en  route 
when  meals  are  not  included  in  the  transportation  fare  paid,  and  not  to  exceed 
$4.50  a  day  for  meals,  tips,  and  lodgings  during  necessary  delay  en  route,  and 
when  meals  are  included  in  the  transportation  fare  paid,  tips  for  meals  not  to 
exceed  15  cents  each. 

6.  Cost  of  meals  and  lodgings,  including  baths,  tips,  and  laundry  work,  not  to 
exceed  $4.50  a  day  for  the  first  30  days  while  on  duty  at  places  designated  in 
the  orders  for  the  performance  of  temporary  duty  and  a  flat  per  diem  allow- 
ance of  $1  a  day  after  the  first  30  days  of  temporary  duty  at  any  one  place. 
In  time  of  actual  war  no  such  reimbursement  of  expenses  or  per  diem  allow- 
ances will  be  allowed  to  the  civilian  employees  speoified  who  accompany  troops 
in  the  field,  but  in  lieu  thereof  the  allowance  of  tents  prescribed  by  the  War 
Department  and  a  ration  will  be  furnished  such  employees. 

7.  In  lieu  of  reimbursement  for  the  actual  expenses  provided  hi  sections  5 
and  6,  civilian  employees,  when  their  orders  so  prescribe,  may  be  allowed  a  flat 
per  diem  allowance  not  exceeding  $4  when  traveling  and  when  on  duty  for  the 
first  30  days  at  places  designated  in  their  orders  for  the  perfomance  of  tem- 
porary duty,  but  no  per  diem  allowance  will  be  allowed  for  temporary  duty  to 
civilian  employees  who  in  time  of  actual  war  accompany  troops  in  the  field,  nor 
for  travel  on  Army  transports.  Where  a  period  of  travel  or  temiK>rary  duty 
includes  fractional  parts  of  a  calendar  day  the  allowance  for  fractional  parts 
will  be  as  follows : 

(o)  If  in  travel  status,  the  day  will  be  divided  into  three  fractional  parts, 
allowance  of  $1.33J  being  made  for  each  meal. 

(6)  If  not  in  travel  status,  the  day  will  be  divided  into  four  fractional  parts, 
allowance  of  $1  being  made  for  each  of  3  meals  and  $1  for  lodging. 

A  statement  will  accompany  each  voucher  showing  the  following  data : 

Time  of  departure  from  permanent  station. 

Time  of  arrival  at  temporary  station. 


\ 


Time  of  departure  from  temporary  station. 

Time  of  arrival  at  permanent  station. 

The  provisions  of  paragraph  735,  in  so  far  as  they  require  the  keeping  of  a 
memorandum  of  the  actual  expenses  incurred  and  taking  of  receipts,  have  no 
application  to  civilians  operating  under  conditions  which  entitle  them  to  a  per 
diem  allowance,  except  for  the  period  while  actually  traveling,  and  then  only 
for  such  items  of  expense  as  are  not  embraced  within  the  per  diem  allowance. 
(C.  A.  R.,  Nos.  13,  18,  25,  27,  and  45.) 

735.  None  but  the  authorized  items  of  traveling  expenses  of  civilians  will  be 
allowed.  A  true  memorandum  of  the  actual  expenses  paid  from  day  to  day  will 
be  kept  and  the  expenses  will  be  fully  itemized  upon  the  voucher,  which  will  be 
properly  sworn  to  by  the  person  rendering  it.  Receipts  for  lodging  (European 
plan)  or  for  board  and  lodging  (American  plan)  must  be  furnished  when  prac- 
ticable to  obtain  them,  showing  the  dates  for  which  the  charges  are  made  and 
the  first  and  last  meal  or  lodging.  Charge  for  lodging  pertains  to  the  day  in 
which  the  night  for  which  the  lodging  was  procured  began.  Receipts  will  not 
be  required  for  meals  except  where  included  with  lodging  on  the  American 
plan,  nor  for  railroad  or  steamboat  fares,  hack  fares,  baggage  transfers,  car 
fare,  tips,  or  fees,  or  similar  expenses.  For  all  other  exi)enses  receipts  will  be 
taken^  unless  it  is  impracticable  to  obtain  them,  when  the  reason  for  not 
obtaining  receipts  must  be  explained  on  the  voucher.  The  usual  Pullman 
berth  check  or  seat  will  be  a  sufficient  receipt  for  sleeping-car  or  parlor-car 
accommodations. 

8.  Each  accountant  will  present  on  War  Department  Form  No. 
350A,  Public  Voucher,  a  statement  of  traveling  expenses  on  the  15th 
day  and  last  day  of  each  month,  made  in  accordance  with  the  fore- 
going regulations,  but  such  vouchers  will  only  be  submitted  covering 
journeys  directed  on  written  or  telegraphic  orders  from  Washington, 

D.  C. 

9.  Each  accountant  will  be  required  to  make  a  daily  time  report 
on  Form  No.  1620  showing  time  worked  each  day  and  nature  of 
work  done,  and  accountant  in  charge  will  prepare  and  submit  a 
semimonthly  summary  on  Form  No.  1621  of  the  time  expended  by 
himself  and  assistants  while  engaged  in  connection  with  auditing 
work  at  the  contractor's  office. 

10.  Accountants  are  required  to  devote  to  their  work  at  the  con- 
tractor's office  at  least  seven  and  one-half  hours  during  each  working 
day,  excepting  on  Saturdays,  when  the  working  day  will  be  at  least 
four  hours.  Where  requirements  of  the  work  are  such  that  more  time 
than  that  specified  in  the  foregoing  is  necessary  to  the  proper  execu- 
tion of  the  work,  the  accountant  in  charge  shall  use  his  discretion  in 
regard  to  the  hours  of  work. 

11.  The  accountant  in  charge  will  notify  the  officer  in  charge  of 
the  cost- accounting  section  promptly  when  it  is  possible  for  him  to 
execute  the  work  with  less  assistants,  or  when  the  exigencies  of  the 
situation  require  more  assistants  than  are  allotted  to  him. 

12.  The  accountant  in  charge  or  his  assistants  will  make  no  sug- 
gestions to  the  contractor  in  regard  to  changing  his  system  without 


8 

first  submitting  in  detail  the  suggestions  or  recommendations  to  the 
officer  in  charge  of  the  cost-accounting  section. 

13.  It  is  not  the  purpose  of  the  Chief  of  Ordnance  to  recommend 
or  install  cost  systems,  in  whole  or  in  part,  in  the  plants  of  con- 
tractors, except  in  such  cases  where  it  is  necessary  to  arrange  the 
cost  accounting  in  order  that  it  may  be  possible  to  determine  more 
accurately  the  cost  on  contracts  for  the  United  States  us  separate 
and  distinct  from  work  done  in  the  same  plant  for  the  account  of 
others. 

14.  In  the  case  of  the  contract  to  which  accountant  is  assigned 
the  contractor  acts  in  the  capacity  of  agent  for  the  United  States  in 
the  execution  thereof.  Therefore  payments  made  for  direct  labor, 
direct  materials,  factory  overhead  expense,  and  administrative  and 
general  expense  are  expended  by  the  contractor  (in  the  name  of  the 
contractor)  for  the  account  of  the  United  States. 

15.  The  contractor  makes  the  expenditure  from  his  own  funds 
and  is  reimbursed  for  same  upon  proper  certification  therefor  by  the 
accountant  in  charge,  subject  to  final  approval  by  the  cost -accounting 
section,  representing  the  Chief  of  Ordnance. 

16.  The  contractor  receives  remuneration  for  his  services  in  the 
form  of  a  percentage  upon  the  cost  involved  or  a  fixed  sum  per  unit, 
as  may  be  designated  in  the  contract. 

17.  Immediately  upon  being  assigned  to  the  auditing  of  a  contract 
the  accountant  shall  obtain  a  copy  of  contract  and  acquire  a  complete 
understanding  in  regard  to  the  terms  and  other  accounting  features 
pertaining  thereto:  also  acquire  a  complete  understanding  of  the 
"  Deflrdtion  of  cost  pertaining  to  contracts  "  that  relates  to  and  is  a 
part  of  the  terms  of  contract.  He  shall  discuss  or  communicate  with 
the  officer  in  charge  of  the  cost-accounting  section  in  regard  to  any 
parts  that  are  not  clear  to  him  before  undertaking  the  work  of  audit- 
ing the  accounts. 

18.  Immediately  upon  the  arrival  of  the  accountant  in  charge  at 
the  office  of  the  contractor  he  shall  proceed  to  acquaint  himself  with 
the  details  of  that  portion  of  the  contractor's  facilities,  accounts, 
and  organization  that  will  be  engaged  upon  and  pertain  to  the  exe- 
cution of  contracts  for  the  United  States,  in  order  that  it  may  be 
possible  for  him  to  prepare  the  information  required  in  (leneral  In- 
formation, Form  No.  1608. 

19.  In  filling  out  the  "general-information  form"  sufficient  time 
should  be  taken  and  care  exercised  that  the  information  contained 
therein  shall  be  correct  and  complete.  In  such  cases  wliere  it  will 
require  more  than  five  days  to  acquire  the  necessary  information  for 
completion  of  said  form  the  accountant  in  charge  will  so  notify,  in 
writing,  the  officer  in  charge  of  the  cost-accounting  section. 


•     9 

20.  In  making  out  all  forms,  vouchers,  reports,  summaries,  etc.. 
required  by  the  cost-accounting  section,  use  all  the  sj^aces  on  the 
form  such  as  dates,  contract  nunlber^;.  etc.,  so  that  the  information 
may  be  complete  and  thereby  avoid  any  necessity  for  returning  forms 
for  correction  or  completion. 

21.  Whenever  report  can  not  be  made  on  one  blank  or  sheet,  num- 
ber the  sheets,  as  No.  1,  No.  2,  etc.  Each  sheet  must  be  certified  to 
individually,  regardless  of  the  number  of  sheets  involved,  and  all 
sheets  pertaining  to  a  report  must  be  clipped  together. 

22.  Accountants  are  cautioned  against  reaching  conclusions  too 
quickly  and  without  complete  understanding  of  all  the  conditions, 
circumstances,  customs  of  the  trade  and  organization  with  which  they 
have  to  deal. 

.-^j-^lNSTRUCTIONS  IN  USE  OF  SUMMARIES. 

23.  The  title  "  Summary  "  is  given  to  those  forms  that  will  be 
used  by  the  contractor  and  accountant  in  charge  for  reporting  the 
general  details  of  expenditures  made  and  services  rendered  by  the 
contractor.  The  summaries  Avill  accompany  i^nd  :  uppoit  the  Public 
Voucher,  Form  No.  325,  made  by  tlie  contiacior  and  sent  to  the  cost 
accounting  section,  and  upon  which  the  contractor  is  entitled  to  re- 
imbursement. 

24.  The  following  is  a  list  of  the  summaries  that  will  be  used : 

Summary  of  Direct  Labor,  Form  No.  1009. 
Summarv  of  Direct  Materials,  Form  No.  1611. 
Summary  of  U.  S.  Materials  Used,  Form  No.  1612. 
Summary  of  Special  Purchases,  Form  No.  1613. 
Summary  of  Factory  Overhead  Expense,  Form  No.  1614. 
Summarv  of  Administrative  and  General  Expense,  Form  No. 
1616.  ' 

25.  Separate  sununaries  will  be  made  for  each  contract  where  con- 
tractor is  manufacturing  on  more  than  one  contract  for  the  United 
States.  Accountant  in  charge  will  make  all  summaries  in  triplicate 
for  disposition,  as  follows: 

Original  copy — to  cost-accounting  section.  This  copy  will  l>e 
pinned  or  clipped  to  the  Public  Voucher  which  it  is  in  sup- 
port of. 

Duplicate  copy — retained  by  contractor  and  attached  to  its 
copy  of  the  Public  Voucher. 

Triplicate  copy — retained  by  accountant  in  charge. 

26.  Summaries  in  each  case  will  be  numbered,  beginning  at  No.  1 
and  continue  consecutively  until  the  contract  is  completed,  i.  e. : 

Summary  of  Direct  Labor,  beginning  at  No.  1. 
Summary  of  Direct  Materials,  beginning  at  No.  1,  etc. 

1536—17 2      . 


10 

27.  Wlien  more  than  one  sheet  is  required  to  complete  any  sum- 
mary each  sheet  must  be  certified  to  separately,  number  such  sheets, 
beginning  at  No.  1,  and  clip  them  together  in  proper  number  order. 

28.  In  filing  sunnnaries,  accountant  in  charge  will  fold  the  sum- 
mary in  four,  and  file  in  document  file  or  bind  with  rubber  band,  or 
summaries  may  be  filed  flat  where  such  filing  facilities  are  available, 
keeping  each  class  of  summary  together  in  proper  number  order. 

29.  Summaries  will  be  returned  to  accountant  in  charge  by  cost- 
accounting  section  unless  the  information  i)rescribed  by  the  form  is 
made  complete  in  every  detail. 

30.  Immediately  upon  completion  of  a  summary  the  accountant 
in  charge  will  prepare  the  necessary  analysis  and  make  proper  entry 
therefor  on  the  Analysis  Sheets,  Form  No.  1610,  that  are  described 
in  paragraphs  Nos.  91  to  104,  inclusive,  in  these  instructions. 

31.  The  General  Summary,  Form  No.  1617,  will  be  made  by 
accountant  in  charge  at  the  end  of  each  month  from  the  analysis 
sheets  and  shall  constitute  a  general  statement  embracing  all  the 
transactions  represented  by  summaries  sent  to  cost-accounting  section 
during  the  month. 

32.  Use  a  General  Summary  sheet  for  each  class  of  summary  sub- 
mitted, heading  such  sheet  with  proper  title — ^i.  e.,  Direct  Labor, 
Direct  Materials,  Special  Purchases,  etc. 

INSTRUCTIONS  IN  USE  OF  PUBLIC  VOUCHER,  FORM  NO.  325. 

33.  The  Public  Voucher,  Form  No.  325,  is  made  in  triplicate,  and 
will  be  used  by  contractor  for  obtaining  reimbursement  for  expendi- 
tures made  that  are  represented  and  supported  by  summaries.  Forms 
Nos.  1609,  1611,  1612, 1613,  1614,  and  1616. 

34.  The  copies  of  Public  Voucher  will  be  disposed  of  as  follows: 

Original  and  duplicate  copies — sent  to  cost-accounting  section 
with  original  copies  of  supporting  summaries  pinned  or 
clipped  thereto. 

Triplicate  copies — retained  by  contractor  with  its  copies  of 
summaries  attached  thereto. 

35.  The  following  certifications  are  necessary  on  the  original  copy 
sent  to  cost-accounting  section: 

{a)   Certification  of  contra/itor, 

(h)   Certification  of  accountant  in  charge. 

36.  Do  not  number  the  voucher,  as  this  will  be  done  by  cost- 
accounting  section,  but  refer  thereon  to  the  numbers  of  the  sum- 
maries submitted  therewith. 

37.  The  column  on  the  extreme  right  of  the  form  is  reserved  for 
use  by  the  cost-accounting  section:  also  the  spaces  on  the  lower  por- 
tion of  the  form  beginning  at  item  No.  19. 


11 


DIRECT  LABOR. 

38.  It  is  necessary  that  accountants  acquire  a  complete  understand- 
ing in  regard  to  that  labor  constituting  direct  labor  ("  Definition  of 
cost  pertaining  to  contracts") ;  also  the  methods  employed  by  the 
contractor  in  accounting  for  such  labor  that  pertains  to  contracts 
for  the  United  States. 

39.  In  some  instances  the  plant  of  the  contractor  will  be  engaged 
on  work  for  others  while  working  on  contracts  for  United  States,  and 
unless  the  workmen  and  equipment  are  physically  separated  or  the 
work  done  in  separate  departments  the  accountants  will  be  required 
to  use  extraordinary  care  in  order  to  prevent  the  possibility  of  the 
direct  labor  pertaining  to  contracts  for  United  States  becoming  con- 
fused with  direct  labor  for  others. 

40.  For  each  workman  whose  wages  are  classified  as  direct  labor 
a  daily  record  (made  by  workman,  factory  clerk,  or  foreman)  will  be 
maintained,  giving  the  following  information: 

(a)  Description  of  operation,  component  part,  or  article 
worked  upon,  and  the  number  of  hours  chargeable 
thereto. 

(h)  Quantity  of  operations  or  pieces  completed. 

(c)  Hourly  rate  or  piecework  price. 

(rf)  Amount  of  overtime  allowance. 

(6)  Total  amount  earned. 

41.  Summaries  of  these  daily  time  reports  shall  be  maintained  by 
contractor  and  the  information  classified  thereon  in  such  a  manner 
as  will  make  it  possible  to  readily  determine  the  cost  of  all  direct 
labor  applicable  to  any  operation  or  component  part  or  article,  and 
all  articles  manufactured  under  any  contract  with  the  United  States : 
these  summaries  are  to  be  prepared  periodically  and  shall  conform 
to  the  pay-roll  periods  of  the  contractor.  Where  the  direct-labor 
operations  pertaining  to  the  manufacture  of  an  article  are  very 
numerous  the  accountant  in  charge  will  not  be  expected  to  submit 
a  detailed  statement  of  the  direct  labor  by  operations,  but  in  such 
cases  submit  a  statement  showing  charges  to  the  component  part  or 
articles. 

42.  The  totals  of  such  summaries  must  agree  with  the  amount  of 
direct  labor  paid  for.  The  contractor  will  use  the  form  prescribed 
by  the  Chief  of  Ordnance  (Summary  of  Direct  Labor,  Form  No. 
1609)  for  certifying  to  the  amount  of  direct  labor  paid  for  on  each 
pay  roll,  separate  summaries  being  made  for  each  contract  where 
contractor  is  manufacturing  on  more  than  dne  contract  for  United 

States. 

43.  The  accountant  in  charge  will  certify  to  the  fact  that  he  has 
examined  the  pay  rolls  reported  on  each  sheet  of  the  summary  sub- 
mitted with  Public  Voucher  for  payment. 


M 


12 

44.  The  following  is  descriptive  of  the  information  required  in  the 
columns  provided  on  Summary  of  Direct  Labor,  Form  No.  1609: 

Column  Xo.  1: 

Xame  of  operation  (such  as  molding,  forging,  cutting  off, 

milling,  drilling,  reaming,  boring,  etc.) ;  or 
Name  of  part  (such  as  base,  drum,  bearing,  bolt,  etc.). 
Column  No.  2:  Name  of  departnietit   (such  as  lathe,  drill, 
press,  milling,  foundry,  blacksmith,  assembling,  painting, 
etc.). 

Column  No.   3:  Amount  of  wages  paid  at  regular^  rates, 
whether  on  hourly  or  piecework  basis. 
\    Column  No.  4 :  Amount  of  money  paid  workmen  for  overtime, 
premium,  bonus,  etc. 
Column  No.  5 :  Total  amount  of  direxit  labor  paid  for. 

45.  These  summaries  should  be  sent  with  Public  Voucher  to  cost- 
accounting  section  promptly  in  order  that  contractor  may  be  re- 
imbursed. 

46.  The  accountant  in  charge  must  maintain  the  following  checks 
on  the  pay  roll : 

{a)  Comparison  of  hours  reporod  on  daily  time  records  with 
time-clock  records. 

(&)  Comparison  of  wage  rates  on  pay  roll  with   wage-rate 
record. 

(c)  Comparison    of    piecework    rates   paid    with    piece-rate 
record. 

id)   Accompany  paymaster  in  "  paying  off  "  whencA  er  possible 
to  see  that  all  the  pay  envelopes  are  accounted  for. 
-  {e)  Verify  all  footings  and  extensions  on  pay  rolls. 

DIRECT  MATERIALS. 

47.  The  term  "direct  materials"  applies  to  raw  material  and  com- 
ponent parts  purchased  for  use  in  and  becoming  a  part  of  the  article 
contracted  for.  (See  definition  of  "  Cost  pertaining  to  contracts  "). 
The  following  examples  are  given  to  illustrate  the  term  more  fully: 

Direct  materials  as  applied  to  shrapnel  consists  of  >teel,  cop- 
per, antimony,  lead,  spelter,  fuses,  primers,  containers,  or 
packing  material,  etc. 

Direct  materials  as  applied  to  cartridges  consists  of  copper, 
zinc,  lead,  powder,  containers,  or  i)acking  materials,  etc. 

Direct  materials  as  applied  to  fuses  consists  of  body  forging, 
brass  rod,  brass  wire,  brass  ribbon,  sheet  brass,  brass  tubing,' 
containers,  or  packing  materials,  etc. 

48.  All  direct  materials  received  at  the  plant  of  the  contractor 
for  the  account  of  the  United  States  shall  be  counted,  weighed  or 
measured,  marked  for  identification,  and  inspected  bv  Ordnance 
inspector. 


H 


13 

49.  The  Ordnance  inspector  will  approve  all  prices  on  purchase 
invoices,  and  such  approval  must  appt^ar  upon  the  purchase  invoice 
before  the  accountant  in  charge  will  certify  to  the  correctness  thereof. 

50.  The  accountant  in  charge  shall  certify  to  the  correctness  of 
only  such  invoices  for  direct  material  as  are  supported  by  receiving 
reports  certified  to  as  correct  by  the  Ordnance  inspector. 

51.  Accountant  in  charge  will  instruct  the  contractor's  accountants 
to  attach  certified  receiving  report  and  freight  and  expense  bills  to 
invoices  that  have  been  approved,  whereupon  the  accountant  in 
charge  will  imprint  rubber  stamp  on  invoice  and  fill  out  the  certifica- 
tion required  thereon. 

52.  Certification  (rubber-stamp  imprint)  required  on  all  invoices 
as  follows: 

Date  rec'd for  Contract  No.  . 

Quantity  by Inspector. 

Quality  by Inspector. 

Prices  by :  Inspector. 

Invoice  by Accountant. 

This  invoice  included  in  Summary  No.  . 

53.  The  contractor  will  be  reimbursed  for  cash  actually  disbursed 
on  account  of  direct  materials  on  contracts  for  United  States ;  such 
reimbursement  will  be  made  in  accordance  with  the  Public  Voucher, 
Form  No.  325,  supported  by  Summaries  of  Direct  Materials,  Form 
No.  1611,  both  of  which  are  certified  to  by  the  contracto^^  and  account- 
ant in  charge. 

54.  The  following  is  descriptive  of  the  information  required  in 
the  columns  on  Form  No.  1611 : 

Column  No.  1 :  Names  of  individuals,  firms,  or  corporations  to 

whom  money  was  paid  for  direct  materials. 
Column  No.  2 :  Date  of  disbursement,  or  date  of  contractor's 

check. 

Column  No.  3 :  Number  of  voucher,  remittance  register  num- 
ber, or  check  number  of  contractor.  (Whenever  possible  use 
contractor's  voucher  number.) 

Column  No.  4 :  Net  amount  of  invoices  ( is  arrived  at  by  de- 
ducting all  cash,  trade,  and  quantity  discounts  allowed  by 
seller). 

Column  No.  5 :  Freight  paid  by  contractor  and  not  allowed  by 

seller.     (Use  extreme  care  in  auditing  freight  charges  to  see 

that  amount  reported  as  additions  to  direct-material  cost  is 

not  again  included  as  undistributed  freight.) 

Column  No.  6 :  Add  freight  in  column  No.  5  to  net  of  invoice 

column  No.  4  and  enter  the  net  cost  in  column  No.  6. 

65.  The  invoices  supporting  the  disbursements  made  by  contractor 

for  direct  materials  shall  at  all  times  be  considered  the  property  of 


i 


\ 


14 

the  United  States,  and  while  in  the  custody  of  the  contractor  are 
subject  to  the  disposition  and  call  of  the  Chief  of  Ordnance. 

56.  Materials  and  supplies  purchased  for  the  account  of  articles 
contracted  for  shall  be  stored  in  spaces  or  inclosures  sej^arate  and 
apart  from  material  and  supplies  purchased  by  the  contractor  for  the 
account  of  others  than  the  United  States  and  marked  in  such  wise 
as  to  always  keep  the  same  separately  identified. 

57.  The  inspectors  and  accountants  representing  the  Chief  of 
Ordnance  shall  at  all  times  have  access  to  those  places  where  material 
in  connection  with  the  articles  contracted  for  are  received,  stored, 
used,  processed,  and  shipped,  and  all  of  the  records  maintained  in 
connection  therewith. 

58.  It  will  in  all  cases  be  necessary  for  the  Ordnance  inspector  to 
furnish  satisfactory  evidence  to  the  accountant  in  charge  of  the 
receipt  of  said  materials  and  supplies,  the  consumption  or  usage  of 
same  in  production^  and  at  all  times  be  able  to  account  for  the  balance 
shown  by  the  records  to  be  "  on  hand  "  in  stores  or  "  in  process  "  of 
manufacture.  Kecord  of  United  States  Materials,  Form  No.  1625, 
may  be  used  by  accountant  in  charge  and  Ordnance  inspector  for 
keeping  a  record  of  the  "Materials  purchased  by  contractor  for 
United  States"  and  "Materials  furnished  by  the  United  States." 
This  form  provides  for  a  record  of  the  receipt,  consumption,  and 
balance  of  stores. 

59.  All  materials  drawn  from  stores  will  be  accounted  for  by  requi- 
sitions certified  to  by  the  Ordnance  inspector.  The  accountant  in 
charge  will  tabulate  such  requisitions  on  an  analysis  sheet,  using 
Form  No.  1610  therefor,  and  post  the  totals  therefrom  from  time  to 
time  to  Form  No.  1625. 

60.  The  Ordnance  inspector,  in  cooperation  with  the  accountant 
in  charge,  will  check  up  the  balance  of  the  various  materials  in  stores 
by  comparison  of  the  records  (Form  No.  1625)  with  the  physical 
count  made. 

61.  The  contractor  shall  prepare  and  submit  to  the  contracting 
officer  a  complete  bill  of  material,  setting  forth  the  following  details 
in  connection  with  material  and  parts  contained  in  one  article  (or 
unit)  contracted  for: 

(a)  Description  of  part  (name  part  number,  etc.) 
(h)  Description  of  material  contained  in  each  part  (kind  ol 
material,  dimensions,  weight,  etc.). 

(c)  Quantity  of  each  part  necessary  to  assemble  one  unit  com- 

plete. 

(d)  Unit  cost  of  material  used  in  each  part. 
{e)  Direct  material  cost  of  part. 

(/)  Total  cost  of  direct  material  in  article  or  unit. 


15 

62.  The  bill  of  material  must  be  checked  and  revised  by  the  Ord- 
nance inspector  from  time  to  time  in  order  to  see  that  it  conforms  to 
actual  practice. 

63.  The  purpose  of  the  bill  of  material  is  to  provide  a  means  for 
verifying  the  quantities  of  materials  used.  In  making  a  test  of  the 
materials  used  by  means  of  the  bill  of  material  the  following  pro- 
cedure is  recommended: 

(a)  Determine  quantity  of  rough  parts  or  raw  material  re- 
ceived. 

(&)  Determine  quantity  of  pai*ts  or  raw  material  on  hand,  in 
stores.  * 

(c)  Determine  quantity  of  finished  parts  or  articles  manu- 

factured. 

(d)  Determine  quantity  of  parts  or  articles  in  process  of 

manufacture. 
{e)  Determine  quantity  of  scrap  made. 

{f)Aa)-{h)  =  {c)  +  {d)  +  (e), 

MATERIALS  FURNISHED  BY  UNITED  STATES. 

64.  The  contracting  officer  will  contract  for  certain  materials  from 
various  sources  of  supply,  subject  to  orders  for  delivery  by  the  Chief 
of  Ordnance.  Material  so  contracted  for  will  be  paid  for  by  the 
United  States  upon  proper  evidence  of  receipt  thereof  at  the  plant 
of  contractor.  The  contractor  will  make  no  disbursements  from  its 
own  funds  in  payment  therefor,  but  will  be  held  accountable  for  the 
quantity  delivered  to  it. 

65.  Profit  will  accrue  to  the  contractor  on  the  cost  of  such  material 
only  as  it  is  used  in  the  manufacture  of  the  articles  contracted  for, 
unless  otherwise  specified  in  contract,  such  usage  to  be  reported  on 
Public  Voucher,  Form  No.  325,  supported  by  Summary  of  United 
States  Materials  Used,  Form  No.  1612,  which  will  be  submitted  to 
cost  accounting  section  on  the  last  day  of  each  month. 

66.  Ordnance  inspector  will  report  to  the  accountant  in  charge  the 
receipt  of  and  consumption  of  materials  furnished  by  United  States. 
The  receipt  of  such  material  will  be  reported  on  Receiving  Report  of 
U.  S.  Materials,  Form  No.  1624,  which  will  be  prepared  in  three 
copies  by  Ordnance  inspector  for  disposition  as  follows : 

Original  and  duplicate  to  accountant  in  charge,  who  will  for- 
ward original  to  cost-accounting  section,  retaining  duplicate 
for  his  records. 

Triplicate  retained  by  Ordnance  inspector  for  his  record. 

The  usage  of  such  material  may  be  reported  on  the  regular 
requisition  form  used  by  contractor. 


16 


17 


67.  Accountant  in  charge  will  use  Record  of  U.  S.  Material,  Form 
No.  1()25,  for  recording  the  (luantities  and  values  of  United  States 
materials  received  and  used.  Allot  a  separate  sheet  to  eac^h  kind  or 
lot  of  materials,  enter  thereon  all  the  details  prescribed  h\  the  form 
under  the  following  headings : 

(a)  Invoiced  by  seller  or  Ordnance  Department. 

(b)  Received  by  contractor. 

(c)  Used  on  contracts. 

(d)  Balance  on  hand. 

68.  The  following  accounts  will  be  maintained  on  the  contractor's 
books  in  connection  with  such  transactions : 

H.  Material    fumkhed    hy     United    States    for    Contract 

No. . 

Debit  this  account  with  the  cost  of  material  furnished  bv 
United  States  and  invoiced  by  the  Ordnance  Depart- 
ment and  charged  to  contractor  to  be  used  by  it  in  the 
manufacture  of  articles  contracted  for.     Make  corre- 
sponding credit  to  "  United  States  "  account  K. 
Credit  this  account  H  with  the  cost  of  such  material  actu- 
ally used  in  the  manufacture  of  the  articles  contracted 
for.    Make  corresponding  debit  to  account  E. 
The  balance  of  this  account  "  H,"  therefore,  will  repre- 
sent the  value  of  all  material  furnished  bv  United 
States  that  is  on  hand  upon  which  no  labor  is  per- 
formed. 
E.  Material  furnished  hy   United  States  used  on  Contract 
No. . 

Debit  this  account  with  the  value  of  the  material  fur- 
nished by  the  United  States  that  is  used  on  this  con- 
tract. 
K.  United  States. 

Credit  this  account  with  the  amounts  corresponding  to 
the  debits  made  to  account  li  (for  material  owned  by 
United  States  and  shipped  to  contractor). 

The  cumulative  credit  balance  of  this  account  should  at 
all  times  correspond  with  the  cumulative  debit  bal- 
ance on  account  E  plus  the  balance  of  the  inventory 
account  H. 

69.  Freight  paid  by  contractor  on  materials  furnished  and  paid 
for  by  United  States  will  be  reported  on  the  Summary  of  Direct 
Materials,  Form  Xo.  1611.  The  same  regulations  apply  to  the  audit- 
ing of  such  freight  bills  by  the  accountant  in  charge  as  are  con- 
tained in  paragraphs  88  and  89  of  these  instructions. 


SCRAP— DEFECTIVE  AND  SPOILED  MATERIAL. 

70.  Scrap  usually  resulting  from  the  use  of  raw  materials  and 
materials  spoiled  or  becoming  defective  in  process  or  through  failure 
to  pass  test  is  the  property  of  the  United  States,  and  it  becomes  an 
important  duty  on  the  part  of  the  Ordnance  inspector  to  report  and 
the  accountant  in  charge  to  render  accounting  for  all  such  material. 

71.  The  Ordnance  inspector  will  see  that  all  scrap  resulting  from 
materials  used  in  articles  contracted  for  by  United  States  is  stored 
in  places  separate  and  apart  from  the  scrap  resulting  from  mate- 
rials owned  by  contractor,  and  report  the  quantities  thereof  to  the 
accountant  in  charge. 

72.  The  accountant  in  charge  will  report  on  Form  No.  1618  the 
approximate  quantity  of  scrap  that  has  been  reported  to  him  by 
Ordnance  inspector  each  month,  such  report  being  made  as  of  the 
last  day  of  the  month.  He  shall  also  report  at  the  same  time  the 
amount  of  scrap  disposed  of  on  authority  of  the  Chief  of  Ordnance, 
using  Form  No.  1619  for  the  purpose. 

73.  The  amount  of  scrap  reported  by  the  contractor  should  be 
verified  by  Ordnance  inspector  and  accountant  in  charge  from  time 
to  time  by  obtaining  a  test  on  a  given  quantity  of  material  used  or 
parts  produced,  the  result  of  such  test  being  applied  to  the  total 
quantity  of  material  used  or  parts  produced  to  determine  the  gen- 
eral accurf^cy  of  the  weight  of  scrap  reported. 

74.  The  contractor  shall  make  such  disposition  of  the  cash  col- 
lected from  the  sale  of  scrap  that  he  will  be  authorized  to  sell  from 
time  to  time  as  may  be  directed  by  the  Chief  of  Ordnance  and  apply 
the  same  as  a  credit  in  determining  the  total  cost,  crediting  such 
sales  to  ii/,  Scrap  sales  account  of  United  States. 

FACTORY  OVERHEAD  EXPENSE. 

75.  The  conditions  existing  in  the  various  plants  involved  makes 
it  impractical  to  outline  in  these  instructions  any  definite  plan  for 
apportioning  or  distributing  factory  overhead  expense  to  the  cost 
of  the  articles  contracted  for. 

76.  The  attention  of  the  accountant  in  charge  is  directed  to  the 
"Definitions  of  cost  pertaining  to  contracts"  and  that  part  thereof 
that  refers  to  factory  overhead  expense  as  a  guide  to  him  in  making 
his  recommendations  to  the  cost-accounting  section  in  regard  thereto. 

77.  The  cost -accounting  section  will  furnish  the  accountant  in 
chairge  with  special  instructions  covering  each  particular  case  upon 
receipt  of  the  general  information  form  and  the  recommendations 
of  the  accountant  in  charge,  together  with  any  other  data  that  may 
be  required  for  the  purpose. 


I  (HI 


18 

78.  The  contractor  will  submit  a  public  voucher.  Form  No.  325, 
for  such  expenses  properly  certified  to  by  the  accountant  in  charge 
and  supported  by  Summary  of  Factory  Overhead  Expense,  P'orm 
No.  1614. 

ADMINISTRATIVE  AND  GENERAL  EXPENSE. 

79.  The  same  remarks  apply  to  this  division  of  expense  as  out- 
lined in  the  foregoing  in  connection  with  factory  overhead  expense. 

80.  The  contractor  will  submit  a  Public  Voucher,  Form  No.  325, 
for  such  expenses  properly  certified  to  by  accountant  in  charge  and 
supported  by  a  Summary  of  Administrative  and  General  Expenses, 
Form  No.  1616. 

SPECIAL  PURCHASES  FOR  INCREASING  FACILITIES. 

81.  Special  purchases  of  buildings,  machinery,  equipment,  and  the 
like  may  be  made  by  the  contractor  on  the  authority  of  the  contract- 
ing officer  and  such  authority  must  be  contained  in  writing  in  every 
instance. 

82.  The  contractor  will  be  reimbursed  by  the  United  States  for 
such  special  purchases  upon  presentation  of  Public  Voucher,  Form 
No.  325,  supported  by  the  evidence  required  on  Summary  of  Special 
Purchases,  Form  No.  1613. 

83.  The  cost- accounting  section  will  return  to  contractor  any  public 
voucher  or  summary  of  special  purchase  that  are  not  accompanied 
by  original  vendor's  invoice,  architect's  estimate,  or  engineer's  cer- 
tificate. All  such  documents  must  be  approved  by  contractor,  Ord- 
nance inspector,  and  accountant  in  charge. 

84.  The  accountant  in  charge  will  verify  the  following  details  in 
connection  with  each  purchase: 

First.  Obtain  written  authority  of  contracting  officer  and  de- 
termine whether  the  purchase  made  conforms  in  every 
particular  thereto. 
Second.  Obtain  certification  of  Ordnance  inspector  that  the 
property  is  received  in  good  order,  conforms  to  all 
specifications,  and  is  necessary  in  connection  with 
the  execution  of  contracts  for  the  United  States. 
Third.  Obtain  "  work  order  "  or  "  cost  record  "  of  contractor 
in  which  is  contained  the  details  of  cost  incident  to 
the  installation  or  erection  of  the  property;  also 
freight  bills  paid  by  contractor  in  order  to  present  a 
complete  cost  in  connection  with  each  purchase  on 
the  Summary  of  Special  Purchases,  Form  No.  1613, 
all  of  which  must  have  the  approval  of  the  Ord- 
nance inspector. 


-  h 


19 

85.  The  cost  of  such  special  purchases  is  not  subject  to  any  addition 
for  profit  to  the  contractor  unless  otherwise  specified  in  contract. 

86.  The  accountant  in  charge  and  Ordnance  inspector  will  render 
semiannually  a  complete  return  of  property  owned  by  the  United 
States  as  required  by  existing  regulations  and  will  keep  records  that 
wil  make  it  possible  for  them  to  check  the  correctness  of  the  physical 

count  reported  by  them. 

87.  The  accountant  in  charge  will  instruct  the  contractor  to  open 
a  special  account,  where  such  purchases  are  in>  olved,  as  follows : 

1.  Special  purchases  made  for  United  States. 

Debit  this  account  with  the  payments  made  by  contractor 
on  account  of  special  purchases  of  buildings,  ma- 
chinery, equipment,  special  appliances,  etc.,  and  all  ex- 
penses in  connection  therewith,  that  has  been  pur- 
chased on  authority  of  the  contracting  officer,  and  that 
becomes  the  property  of  the  United  States. 
Credit  this  account  with  the  cash  received  from  the 
United  States  in  payment  therefor. 

AUDITING  FREIGHT  BILLS. 

88.  Accountant  in  charge  shall  accept  only  original  receipted 
freight  bills  approved  hy  Ordnam.ce  impector  as  additions  to  invoices 

for  materials. 

89.  In  auditing  freight  bills  representing  charges  to  direct  mate- 
rials, etc.,  on  contracts  for  the  United  States,  the  following  conditions 
of  purchase  contract,  purchase  order,  etc.,  must  be  observed : 

{a)  All  freight  paid  on  direct  materials  or  special  purchases 
must  be  charged  thereto  and  included  as  part  of  the 
cost  thereof  on  Summary  of  Direct  Material,  Form  No. 
1611,  or  Summary  of  Special  Purchases,  Form  No.  1613. 

{h)  When  freight  is  prepaid  hy  seller  and  added  to  invoice, 
see  that  the  amount  added   agrees  with   the  freight 

expense  bill. 
{c)  When  freight  is  allowed  hy  seller  and  deducted  from  its 
invoice,  see  that  the  amount  so  deducted  is  in  agreement 
with  the  amount  on  freight  expense  bill  paid  by  con- 
tractor. 

(d)  When  freight  is  allowed  hy  seller  and  not  dedu^cted  from 

invoice,  see  that  the  amount  paid  by  contractor  is  de- 
ducted from  invoice. 

(e)  Compare  invoice  tceights  and  weights  shown  on  receiving 

reports  with  weights  charged  on  freight  hills, 
(/)  Accountant  in  charge  must  acquaint  himself  with  the 
routi/ng  and  freight  rates  applicable  to  the  materials 
on  contracts  and  be  guided  accordingly  in  the  auditing 
of  freight  bills. 


I 

I, 


20 

{g)  Claims  against  common  earners  for  shortages  and  excess 
charges  must  be  credited  at  once  to  the  direct  materials, 
accounts  and  collection  made  by  the  contractor,  the 
contractor  in  all  cases  assuming  the  accounts  for  claims. 

{h)  Freight  charges  applying  to  direct  materials  must  be 
made  directly  from  freight- disbursement  vc.ucher  to 
"direct  material  accounts."  Any  other  charges  for 
freight  included  in  the  Summary  of  Factory  Overhead 
Expense,  Form  No.  1614,  must  be  supported  by  Analysis 
of  Freight,  Form  No.  1615,  showing  in  detail  the  pur- 
pose for  which  such  freight  was  paid. 

DISCOUNTS. 

90.  The  United  States  under  all  contracts  is  entitled  to  all  dis- 
counts (trade,  quantity,  and  cash)  taken  by  the  contractor.  Ac- 
countant m  charge  will  report  to  the  cost  accounting  section  any 
omissions  m  this  particular,  giving  reasons  why  discount  was  not 
taken. 

-^7771.  INSTRUCTIONS  IN  USE  OF  ANALYSIS  SHEETS,  FORM  NO.  1610. 

91.  It  has  been  considered  advisable  to  adopt  one  form  that  will 
apply  to  or  can  be  adapted  to  all  forms  of  analyses,  the  advantage 
accruing  therefrom  being  a  reduction  in  the  number  of  forms  in- 
volved and  elimination  of  a  quantity  of  files  and  binders. 

92.  The  analysis  sheets  are  designed  primarily  for  use  by  the 
accountant  in  charge  for  keeping  a  record  of  (he  details,  distributions 
and  classifications  supporting  the  expenditures  represented  by  the 
several  summaries  referred  to  in  these  instructions. 

93.  It  will  be  necessary  to  maintain  a  series  of  analysis  sheets  in 
connection  with  each  and  in  support  of  the  following  summaries 
and  reports: 

Summary  of  Direct  Labor,  Form  No.  1609. 
Summary  of  Direct  Materials,  Form  No.  1611. 
Summary  of  U.  S.  ]\[aterials  Used,  Foini  No.  1612. 
Summary  of  Factory  Overhead  Expense,  Form  No.  1614. 
Summary  of  Administrative  and  General  Expense,  Form  No. 
1616. 

Eeport  of  Scrap  Made,  Form  No.  1618. 
Report  of  Scrap  Shipped,  Form  No.  1619. 

94.  Immediately  upon  completion  of  a  summary  the  accountant  in 
charge  will  enter  the  detail  thereof  on  its  respective  analysis  sheet, 

95.  The  sheets  are  printed  on  one  side  only  and  punched  for  bind- 
mg  on  the  right-hand  margin.  The  accountant  in  charge  will  insert 
proi^er  headings  in  columns  Nos.  6  to  17  (using  pen  and  ink) 


\ 


4Mt  Jk. 

96.  Where  it  is  necessary  to  use  more  columns  for  a  distribution 
than  are  contained  on  one  sheet  an  additional  sheet  can  be  cut  on  the 
line  dividing  columns  No.  5  and  No.  6  and  the  distribution  continued 
on  the  cut  sheet,  inserting  it  in  the  binder  on  top  of  the  niain  sheet. 

97.  Sheets  pertaining  to  one  class  of  anal.ysis  should  l»e  kept 
together  and  index  tabs  used  for  se[>a rating  the  various  classes  of 
analysis  from  each  other  in  the  binder  that  is  provided  therefor. 

98.  One  binder  will  be  furnished  each  accountant  in  charge,  unless 
in  his  judgment,  the  volume  of  detail  involved  will  require  more  than 
one. 

99.  The  accountant  in  charge  will  be  required  at  the  end  of  each 
month  to  prepare  from  the  various  analysis  which  he  will  maintain 
a  general  summary  thereof  for  the  cost  accounting  section.  These 
general  summaries  showing  detail  (listriV)ution  must  be  in  agreement 
with  the  total  of  the  summaries  presented  with  pulilic  vouchers  dur- 
ing the  month. 

ANALYSIS  OF  DIRECT  LABOR. 

100.  Accountant  in  charge  will  maintain  two  forms  of  analysis  in 
connection  with  direct  labor. 

First.  Analysis  of  direct  Icibor  hy  departments. 

(A)  Where  contractor  is  operating  several  producing  de- 
partments in  connection  with  contract  and  in  the  same 
department  where  work  is  htiag  done  for  others;  then 
two  columns  will  be  allotted  for  each  department.  In 
the  first  column  enter  the  total  amount  of  direct  labor 
paid  for  on  all  work  done  in  the  department.  In  the 
next  column  enter  only  the  amount  of  direct  labor  ap- 
plying to  the  contract  with  United  States,  and  which  is 
reported  on  the  Summary  of  Direct  Labor,  Form  No. 
1609.  The  reason  for  obtaining  the  total  direct  labor 
paid  for  under  such  conditions  is  for  the  purpose  of 
determining  the  proper  apportionment  of  overhead  ex- 
pense applying  to  the  contract  for  United  States. 

(B)  Where  the  entire  activities  of  a  producing  depart- 
ment are  devoted  to  the  execution  of  contract,  then  only 
one  column  will  be  required  for  the  direct  labor. 

Second.  Analysis   of  direct  labor ^   hy   operation^  component 
part^  or  article. 

This  analysis  will  be  made  from  the  daily  time  reports  of 
workmen  engaged  on  direct  labor.  Where  it  is  possible 
to  obtain  direct  labor  by  operation,  it  is  desirable  to  do 
so:  if  this  is  impractical  obtain  direct  labor  by  part, 
number,  or  article. 


Use  two  columns,  the  first  one  f<n*  the  pieces  reported  by 
Ordnance  inspector  as  finished,  and  the  next  cohimn 
for  the  direct  labor  paid  for  thereon.  The  total  of  the 
amounts  in  the  latter  columns  will  be  equal  to  the  total 
of  the  amounts  entered  in  the  columns  of  the  first 
analysis  that  represent  charges  to  contract,  and  which 
in  both  cases  must  agree  with  the  amounts  reported  on 
the  Summary  of  Direct  Labor,  Form  No.  1609. 

ANALYSIS  OF  DIRECT  MATERIALS. 

101.  The  direct  materials  reported  on  the  Summary  of  Direct  Ma- 
terials, Form  No.  1611,  will  be  analyzed  by  accountant  in  charge  in 
order  to  determine  the  quantities  and  vahu's  of  the  principal  mate- 
rials entering  into  the  cost  of  direct  materials. 

Attention  is  directed  to  paragraph  No.  47  of  these  instructions, 
which  illustrate  examples  of  what  constitute  principal  direct 
materials. 

Use  two  columns  for  each  principal  material;  enter  in  the 
first  column  the  quantity  (weight,  pieces,  etc.)  and  in  the 
adjacent  column  enter  the  cost  thereof  (net  cost  <?onsists  of 
invoice  cost  less  discount  plus  freight). 

ANALYSIS  OF  FACTORY  OVERHEAD  EXPENSE. 

102.  Accountant  in  charge  will  maintain  two  forms  of  analysis  in 
connection  with  factory  overhead  expense. 

First,  Analysis  of  factory  overhead  expense  hy  accounts. — 
Use  a  column  for  each  expense  account ;  insert  at  the  top  the 
names  of  accounts  and  enter  therein  the  amounts  of  expenses 
reported  on  each  Summary  of  Factory  Overhead  Expense, 
Form  No.  1614. 

Second.  Analysis  of  factory  overhead  expense  hy  depart- 
Toents. — Use  a  separate  sheet  for  each  department  and  insert 
at  the  top  of  the  columns  the  names  or  titles  of  expense 
accounts  and  enter  therein  the  amounts  of  expense. 

103.  The  total  of  any  expense  column  on  the  analysis  of  factory 
overhead  expense  hy  accounts  must  balance  with  the  totals  of  the 
same  expense  columns  appearing  on  all  of  the  sheets  used  in  connec- 
tion with  analysis  of  factory  overhead  expense  hy  departments. 

ANALYSIS  OF  ADMINISTRATIVE  AND  GENERAL  EXPENSE. 

104.  Use  a  column  for  each  expense  account,  insert  at  the  top  the 
name  of  accounts  and  enter  therein  the  amounts  reported  on  the  Sum- 
mary of  Administrative  and  General  Expense,  Form  No.  1616. 


23 


CHART  OF  ACCOUNTS. 


105.  It  is  necessary  and  important  that  the  contractor  maintain 
separate  books,  or  separate  accounts  in  his  present  books,  in  connec- 
tion with  transactions  involved  in  the  execution  of  each  contract  for 
the  United  States. 

106.  The  accounts  prescribed  in  the  following  represent  general 
divisions  of  cost  accounts  and  may  be  considered  principal  accounts 
or  controlling  accounts  subsidiary  to  which  may  be  maintained  any 
number  of  accounts  for  the  purpose  of  obtaining  more  extensive 
analysis  of  each  of  the  principal  elements  entering  into  cost. 

107.  The  following  accounts  (with  explanatory  notes)  are  sugr 
gested  for  this  purpose: 

A.  Direct  labor— United  States  contract  No. 

Debit  this  account  with  the  wages  paid  by  contractor  for 
direct  labor  (see  definition).  Reference  should  be 
made  in  posting  to  the  source  of  entry,  as  pay-roll 
period,  pay-roll  number,  etc. 

B.  Direct  materials — United  States  contract  No. 

Debit  this  account  with  the  actual  cash  disbursements 
made  by  contractor  for  direct  materials,  i.  e.,  '"net 
invoice  cost"  (see  definitions). 

C.  Pro  rata  of  factory  overhead  expense — United  States  con- 

tr^act  No. . 

Debit  this  account  with  the  factory  overhead  expense 
applicable  to  this  contract  (see  definition). 

D.  Pro  rata  of  administrative  and  general  expense— contract 

No. . 

Debit  this  account  with  administrative  and  general  ex- 
pense applicable  to  the  contract  (see  definition). 

E.  Material   furnished   hy    United  States   used   on — United 

States  corUract  No. . 

Debit  this  account  with  the  value  of  the  material  fur- 
nished by  the  United  States  that  is  used  on  this  con- 
tract (see  account  H).  (The  United  States  may 
order  material  shipped  from  source  of  supply  direct 
to  plant  of  contractor  which  material  is  paid  for  by 
the  United  States  and  is  invoiced  and  charged  to  con- 
tractor.) 

F.  Profit — United  States  contract  No, . 

Debit  this  account  with  the  profit  accruing  to  contractor 
on  the  payments  made  by  him  as  represented  in  ac- 
counts A,  B,  C,  D,  and  E. 


24 

108.  The  debits  in  the  foregoing  accounts  A,  B,  C,  D,  E,  and  F 
represent  the  disbursements  made  and  services  rendered  by  the  con- 
tractor  that  contribute  directly  to  the  cost  of  the  article  contracted 
for.  No  credits  will  be  made  to  these  accounts  except  as  may  be  neces- 
sary in  connection  with  current  adjustments.  The  debit  balances  will 
be  cumulative  until  the  conclusion  and  final  settlement  of  the  con- 
tract. 

109.  The  contractor  may  elaborate  upon  these  accounts  if  he  so 
desires  in  order  to  obtain  a  more  detailed  analysis  of  the  Rve  prin- 
cipal elements  entering  into  the  cost  of  contracts,  and  shall  designate 
such  additional  accounts  as  Al,  A2,  Bl,  B2,  etc.,  in  order  to  main- 
tain a  uniformity  in  the  general  classification  of  cost  outlined  in  the 
foregoing. 

G.  Cash  received  from  United  States  on  contrdct  No. . 

Credit  this  account  with  the  cash  received  from  the 
United  States  applying  upon  certified  expenditures 
made  by  contractor  on  account  of  items  A,  B,  (',  D,' 
E,  and  F.    The  voucher  accompanying  the  reimburs- 
^  ing  check  of  the  United  States  will  designate  the 

accounts  on  which  the  reimbursement  a])[)lies,  the 
contractor  can,  therefore,  if  he  so  desires,  classify  the 
cash  received  in  separate  accounts  as  follows : 
Gl — On  account  of  direct  labor. 
•  G2 — On  account  of  direct  7naterials. 

G3 — On  account  of  factory  overhead  expense* 
G4 — On  account  of  administrative  and  general  ex- 
pense. 
Go — On  account  of  profit. 
M.  Scrap  sales  on  account  of  United  States  on  contract  No. 

Credit  this  account  with  cash  received  from  sale  of  scrap 
as  may  be  directed  bv  the  Chief  of  Ordnance. 

ORDNANCE  INSPECTORS. 

110.  The  Chief  of  Ordnance  will  assign  Ordnance  inspectors  to 
plants  of  contractors  for  the  purpose  of  inspecting  raw  materials  and 
finished  product  and  various  other  duties  assigned  to  them  by  their 
directing  officer  in  connection  with  inspection  that  pertains  to  articles 
contracted  for  by  the  United  States. 

111.  The  accountant  in  charge  will  furnish  the  Ordnance  inspector 
with  such  information  as  he  may  request  from  time  to  time  in  regard 
to  all  accounting  matters,  and  each  is  required  to  extend  to  the  other 
the  necessary  cooperation  to  the  end  that  a  complete  accounting  of 
the  property  of  the  United  States  may  be  made  and  maintained. 


>  • 


25 

112.  The  Ordnance  inspector  should  acquaint  himself  with  the 
terms  and  conditions  of  contract,  the  "  Definitions  of  cost  pertaining 
to  contracts,"  and  the  "  Instructions  to  accountants." 

113.  The  principal  duties  of  the  Ordnance  inspector  that  relate 
particularly  to  the  work  of  the  accountant  in  charge  are  as  follows: 

In  regard  to  direct  materials: 

(a)  Certification  on  all  receiving  reports  as  to  quality  and 

quantity. 
(h)  Approval  on  all  invoices  as  to  prices  paid  by  con- 
tractor. 

(c)  Approval   of  all   freight  bills   as   to   classifications, 

weights,  and  rates. 

(d)  Approval  of  all  requisitions  made  on  stores,  account- 

ing for  the  use  or  consumption  of  all  direct  ma- 
terials. 

(e)  Taking  of  physical  inventories. 

In  regard  to  special  purchases  for  increasing  facilities: 

(a)  Approval  of  architect's  or  engineer's  certificates,  in- 
voices, work  orders,  etc. 

{h)  Approval  of  freight  bills  as  to  classification,  weights, 
and  rates. 

((?)  Physical  inventory  of  such  property  as  may  be  re- 
quired from  time  to  time  by  the  Chief  of  Ordnance. 
In  regard  to  material  furnished  by  United  States: 

(a)  Certification  on  all  receiving  reports  as  to  quality  and 
quantities. 

(h)  Approval  of  freight  bills  as  to  classification,  weights, 
and  rates. 

{c)  Approval  of  all  requisitions  made  on  stores,  account- 
ing for  the  use  of  this  material. 

(d)  Taking  of  physical  inventories. 
In  regard  to  scrap : 

{a)  Designate  place  where  such  property  will  be  stored. 
(h)  Making  of  tests  to  ascertain  whether  all  scrap  is  ac- 
counted for. 
(c)  Reports  of  scrap  made. 
{d)  Reports  of  scrap  shipped. 

(e)  Taking  of  physical  inventories. 
Miscellaneous : 

(a)  Checking  of  bill  of  material  from  time  to  time  as  re- 
quired and  revision  of  same  so  that  it  conforms  to 
actual  practice. 

(h)  Reports  on  quantity  of  parts  or  articles  finished, 
stored,  and  shipped. 


ACCOUNTANT'S  STATIONERY  AND  SUPPLIES. 

114.  Accountants  will  be  furnished  with  rubber  stamps  as  follows: 
Imprint  for  "  Purchase  invoices "  (see  par.  No.  46) ;  imprint  for 
"  Other  documents  "  examined. 

115.  The  rubber-stamp  imprint  for  "Other  documents"  examined 
will  be  used  on  all  documents  such  as  pay  rolls,  pay-roll  summaries, 
vouchers,  checks,  cost  records,  cost  summaries,  journal  entries,  etc. 

116.  Accountants  will  be  required  to  write  their  initials  in  the 
space  provided  therefor  in  the  imprint  on  all  papers  examined,  using 
pen  and  ink  or  indelible  pencil  therefor. 

117.  Accountants  will  be  furnished  with  the  necessary  supplies  such 
as  rubber  stamp,  penalty  envelopes,  pencils,  accountant's  working 
paper,  together  with  a  supply  of  all  forms  referred  to  in  the  instruc- 
tions, and  will  be  required  to  furnish  receipt  therefor. 

118.  Accountants  will  advise  the  cost-accounting  section  of  their 
requirements  of  stationery  on  Kequisition  for  Accountant's  Supplies, 
Form  No.  1622,  in  ample  time  to  provide  for  a  supply  to  reach  them 
before  their  supply  is  entirely  exhausted.  The  requisition  consists 
of  three  copies  for  disposition  as  follows : 

First  and  second  copies,  sent  to  cost-accounting  section. 

Third  copy,  retained  by  accountant  until  he  receives  the  sup- 
plies, whereupon  he  will  enter  quantities  received  and  mail 
same  to  cost-accounting  section. 

119.  Four  and  ten  column  working  paper  cun  be  used  by  account- 
ants for  submitting  analyses,  schedules,  etc.,  to  cost-accounting  sec- 
tion in  such  cases  where  it  is  impractical  to  furnish  the  information 
on  summary  forms  or  other  printed  reports. 

120.  Where  contractor  has  in  effect  certain  printed  forms  used  by 
it  for  statements  or  schedules  of  expenses,  the  accountant  in  charge 
is  required  to  submit  them  to  cost-accounting  section  for  approval, 
and,  if  satisfactory,  may  be  authorized  to  use  them  in  connection  with 
the  summaries,  the  summaries  in  such  cases  being  used  for  recapitu- 
lations of  such  statements  and  for  certification  in  regard  thereto. 

War  Depabtment, 

Office  of  the  Chief  of  Ordnance, 

Washington,  July  11,  1917. 
Form  No.  1623. 
Ed.  July  11-17—2,000. 

o 


t 


WAR  DEPARTMENT 

OFFICE  OF  THE  CHIEF  OF  ORDNANCE 


DEFINITION  OF  "COST" 
PERTAINING  TO  CONTRACTS 


THESE  DEFINITIONS  ARE  SUBJECT  TO  MODIFICATION 

OR  CHANGE  AS  MAY  BE  FROM  TIME  TO 

TIME  DETERMINED  BY  THE 

CHIEF  OF  ORDNANCE 


JUNE  27,  1917 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

1917 


WAR  DEPARTMENT 

OFFICE  OF  THE  CHIEF  OF  ORDNANCE 


DEFINITION  OF  "COST" 
PERTAINING  TO  CONTRACTS 


f 


THESE  DEFINITIONS  ARE  SUBJECT  TO  MODIFICATION 

OR  CHANGE  AS   MAY   BE   FROM  TIME  TO 

TIME   DETERMINED   BY  THE 

CHIEF  OF  ORDNANCE 


JUNE  27,  1917 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

1917 


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/       DEFINITION  OF  "  COST  "  PERTAINING  TO 

CONTRACTS. 

[These  definitions  are  subject  to  modification  or  change  as  may  be  from  time  to 

time  determined  by  the  Chief  of  Ordnance.] 


<^ 


1.  The  purpose  of  these  definitions  is  to  convey  to  the  contractor  the 
general  principles  involved  in  the  accounting  for  the  cost  of  the 
articles  contracted  for  with  the  United  States,  and  which  will  be  ad- 
hered to  by  the  contracting  officer  in  the  settlement  of  and  payment 
therefor,  and  also  in  so  far  as  it  is  possible  at  the  present  time  to 
furnish  suggestions  for  the  guidance  of  the  contractor  in  accounting 
matters  pertaining  to  contracts  with  the  United  States. 

2.  It  is  not  the  purpose  of  the  contracting  officer  to  prescribe  the 
form  of  accounting,  or  the  particular  books  and  records  to  be  used 
by  the  contractor  in  connection  with  contracts  for  the  United  States, 
or  to  suggest  changes  of  any  kind  where  the  contractor  has  estab- 
lished accounts,  books,  and  records  that  conform  to  good  accounting 
practice  and  can  furnish  therefrom  the  necessary  data  required  to 
compute  the  cost  of  manufacture  as  deiined  herein. 

3.  It  is  the  desire,  however,  of  the  contracting  officer  that  in  so  far 
as  it  is  practicable  and  possible  to  do  so  the  contractor  shall  maintain 
separately  from  all  other  records  pertaining  to  his  business,  the 
records  and  accounts  pertaining  to  contracts  with  the  United  States. 
The  contractor  may  be  directed  to  maintain  a  separate  ledger  to 
contain  the  necessary  accounts  in  connection  with  such  contracts,  a 
separate  bank  account,  also  separate  record  of  pay  rolls,  stores 
records,  vouchers,  summaries,  bank  checks,  etc.,  for  the  purpose  of 
facilitating  the  clerical  labor  of  both  parties  concerned. 

4.  The  contractor  shall  supply  the  contracting  officer  with  such  de- 
tails and  statistics  pertaining  to  the  cost  of  production  as  he  may  re- 
quire from  time  to  time,  on  forms  to  be  supplied  by  the  contracting 
officer.  The  cost  shall  be  calculated  from  the  date  the  contractor 
shall  commence  any  work  or  manufacturing  operation  in  connection 
with  articles  contracted  for,  of  which  date  he  shall  dulv  notifv,  in 
writing,  the  contracting  officer  and  the  Finance  Division,  Ordnance 
Department. 

5.  The  following  general  definition  of  cost  is  contained  in  contracts 
and  indicated  therein  as  "  Schedule  II." 

106008—17  (3) 


6.  The  term  "  Cost "  as  applied  to  this  contract  consists  of  four  ele- 
ments, which  are  concretely  defined  in  the  following : 

(1)  The  cost  of  all  direct  labor  paid  for  by  the  contractor  and  used 
in  the  production  of  the  articles  contracted  for  herein. 

(2)  The  cost  of  all  direct  mater^ials  contained  in  or  forming  part 
of  the  articles  contracted  for  herein. 

(3)  Prorata  share  of  factory  overhead  expenses  applicable  to  and 
necessary  in  connection  with  the  manufacture  of  the  articles  con- 
tracted for  herein. 

(4)  Prorata  share  of  adrrdnistrative  and  general  expense  appli- 
cable to  and  necessary  in  connection  with  the  manufacture  of  the 
articles  contracted  for  herein. 

1.  Direct  Labor. 

7.  Direct  labor  (or  known  or  productive  labor)  consists  of  wages 
paid  for  labor  performed  upon  (and  that  can  be  charged  directly  to) 
the  articles  contracted  for  or  the  component  parts  thereof.  Allow- 
ance for  overtime  and  premium  shall  be  considered  as  direct  labor 
and  chargeable  to  the  operation,  component  part,  or  article  on  which 
such  overtime  or  premium  applies.  (Indirect  Labor  unknown,  see 
Factory  Overhead  Expense.) 

8.  The  contractor  shall  maintain  a  daily  time  report  in  connection 
with  each  workman  engaged  on  direct  labor,  setting  forth  the  follow- 
ing information : 

(1)  Description  of  operation,  component  part  or  article  worked 
upon,  and  the  number  of  hours  chargeable  thereto. 

(2)  Quantity  of  operations  or  pieces  completed. 

(3)  Hourly  rate,  or  piecework  price. 

(4)  Amount  of  overtime  allowance. 

(5)  Total  amount  earned. 

9.  Summaries  of  these  daily  time  reports  shall  be  maintained  by 
contractor,  and  the  information  classified  thereon  in  such  a  manner 
as  will  make  it  possible  to  readily  determine  the  total  cost  of  all 
direct  labor  applicable  to  any  operation,  component  part,  or  arti- 
cle, and  all  articles  manufactured  under  contract  with  the  United 
States;  these  summaries  to  be  prepared  periodically,  and  shall  con- 
form to  the  pay  roll  periods  of  the  contractor. 

10.  The  rate  of  wages  paid  shall  not  exceed  the  rate  of  wages  being 
paid  for  the  various  classes  of  work  involved  in  the  locality  in  which 
the  work  is  done.  In  general^  salaries  and  wages  will  conform  to  the 
necessities  of  the  situation. 

2.  Direct  Materials. 

11.  The  term  "  Direct  materials  "  applies  to  raw  materials  and  com- 
ponent parts  purchased  for  use  in  and  becoming  a  part  of  the  article 
contracted  for.    Where  contract  specifications  call  for  special  pack-  // 


tfing  and  containers  the  cost  of  such  packages  and  containers  shall  be 
''  classified  as  direct  materials. 

12.  The  contractor  shall  prepare  in  advance  and  submit  to  the  con- 
tracting officer  a  complete  bill  of  material  setting  forth  the  following 
details  in  connection  with  material  and  parts  in  one  article  (or  unit) 
contracted  for: 

(1)  Description  of  part  (name  part  number,  etc.) 

(2)  Description  of  material  contained  in  each  part  (kind  of  ma- 
terial, dimensions,  weight,  etc.) 

(3)  Quantity  of  each  part  necessary  to  assemble  one  unit  com- 
plete. 

(4)  Unit  cost  of  material  used  in  each  part. 

(5)  Direct  material  cost  of  part. 

(6)  Total  cost  of  direct  material  in  article  or  unit. 

13.  The  cost  of  "  direct  materials "  will  be  the  "  net  cost "  to  the 
contractor,  i.  e.,  invoice  cost,  less  cash,  trade,  and  quantity  discounts; 
plus  duty,  import  expense,  freight  and  drayage  paid  by  contractor. 

14.  The  contractor  shall  take  advantage  of  all  discounts  available, 
and  when  unable  to  take  such  advantage  shall  promptly  notify  the 
contracting  officer  of  his  inability  and  the  reasons  therefor. 

15.  The  contractor  shall  always  be  in  a  position  to  furnisli  the 
contracting  officer  with  original  purchase  invoices,  with  original 
receipted  freight  and  expense  bills  attached  thereto.  The  contract- 
ing officer  will  furnish  the  necessary  forms  in  connection  with  the 
receiving  of,  and  the  making  of  reports  and  summaries,  of  the  cost 
of  direct  materials  used  in  the  articles  contracted  for. 

16.  Materials  and  supplies  purchased  for  the  account  of  the  articles 
contracted  for  shall  be  stored  in  spaces  or  inclosures  separate  and 
apart  from  material  and  supplies  purchased  by  the  contractor  for 
the  account  of  others  than  the  United  States,  and  marked  in  such 
wise  as  to  always  keep  the  same  separately  identified. 

17.  The  inspectors  and  auditors  representing  the  contracting  officer 
shall  at  all  times  have  access  to  those  places  where  material  in  con- 
nection with  the  articles  contracted  for  is  received,  stored,  used,  pro- 
cessed, and  shipped,  and  all  of  the  records  maintained  in  connection 
therewith. 

18.  It  will  in  all  cases  be  necessarv  for  the  contractor  to  furnish  sat- 
isfactory  evidence  of  the  receipt  of  said  materials  and  supplies,  the 
consumption  or  usage  of  same  in  production,  and  at  all  times  be  able 
to  account  for  the  balance  shown  by  the  records  to  be  "  on  hand  " 
in  stores  or  "  in  process  "  of  manufacture. 

19.  It  shall  be  within  the  jurisdiction  of  the  inspectors  represent- 
ing the  contracting  officer  to  direct  the  collection  of  scrap,  designate 
storage  places  for  same,  and  certify  to  the  quantity  or  weight  sold. 

20.  If  the  contracting  officer  authorizes  the  contractor  from  time  to 


time  to  sell  scrap  and  defective  material  resulting  from  materials 
owned  by  the  United  States,  the  statements  of  such  sales  shall  be 
submitted  to  the  contracting  officer  on  forms  provided  for  the  pur- 
pose, and  the  proceeds  thereof  shall  be  credited  to  the  account  of 
contracts  for  the  United  States. 

SPECIAL  PURCHASE  OF  TEMPORARY  BUILDINGS, 
MACHINERY,  AND  EQUIPMENT. 

21.  Temporary  buildings,  machinery,  equipment,  etc.,  purchased  by 
the  contractor  upon  the  authority  of  the  contracting  officer  for  use  in 
connection  with  manufacturing  the  articles  contracted  for,  which 
equipment  becomes  the  property  of  the  United  States  shall  not  be 
classified  as  direct  materials,  upon  which  any  percentage  of  profit 
shall  be  paid  to  the  contractor.  The  cost  of  the  same  shall  be  re- 
ported to  the  Finance  Division,  Ordnance  Department,  on  forms  pro- 
vided therefor. 

22.  Labor  performed  by  the  contractor  in  connection  with  the  set- 
ting, erection,  or  construction  of  such  equipment  shall  be  subject  only 
to  the  overhead  expense  that  applies  to  the  department  of  the  contrac- 
tor's plant  that  furnishes  the  labor,  such  as  direct  supervision  thereof, 
time  keeping,  and  expense  incidental  thereto  and  a  reasonable  allow- 
ance for  factory  management,  general  plant  expense,  or  administra- 
tive expense. 

23.  The  total  cost  of  such  equipment  including  erection  or  s(»tting 
shall  not  be  subject  to  any  addition  for  profit  to  the  contractor  as 
aforesaid  unless  otherwise  specified  in  the  contract,  or  approved  in 
writing  by  the  contracting  officer. 

24.  The  contractor  shall,  as  he  may  be  called  upon  by  the  contract- 
ing officer,  furnish  complete  detailed  inventories  of  the  ])roperty  of 
the  United  States  in  the  custody  of  the  contractor. 

3.  Factory  Overhead  Expense. 

25.  Factory  overhead  expense  is  represented  by  the  wages  paid  to 
superintendents,  foremen,  factory  clerks,  and  indirect  labor  (or  non- 
productive labor) ,  also  supplies,  perishable  tools,  and  materials  used 
in  connection  with  the  operation  of  the  machinery  and  the  upkeep 
of  plant,  depreciation,  portion  of  taxes,  portion  of  insurance,  and 
other  expenses  hereinafter  enumerated. 

26.  The  contractor  shall  maintain  his  records  in  such  a  manner  as 
will  enable  the  contracting  officer  to  determine  the  quantities  and  de- 
tail costs  of  all  items  of  factory  expense  entering  into  the  operation 
of  each  of  the  manufacturing  departments  through  which  the  articles 
contracted  for  pass  in  process  of  manufacture  in  the  period  during 
which  the  plant  is  manufacturing  the  articles  contracted  for. 


27.  An  outline  of  accounts  is  herein  suggested  by  the  Finance  Divi- 
sion (cost  accounting  section)  of  the  Ordnance  Department,  and 
it  is  recommended  that  these  or  similar  accounts  be  maintained  by 
the  contractor,  unless  the  contractor  has  in  eflFect  accounts  of  a  simi- 
lar nature,  or  accounts  better  adapted  to  the  requirements  of  his 
plant.  This  outline  indicates  the  various  classes  of  expense  that  are 
recognized  as  factors  in  that  portion  of  the  cost  referred  to  as  "  Over- 

.  head  expense." 

28.  The  following  principal  accounts  are  recommended  in  connec« 
tion  with  the  accounting  for  the  expense  of  each  factory  department 
(producing  or  nonproducing)  that  contributes  directly  or  indirectly 
to  the  cost  of  the  articles  contracted  for : 

(1)  Supervision  and  clerical  salaries  (foremen,  clerks,  timekeep- 
ers, etc.). 

(2)  Indirect  labor  (nonproductive,  such  as  trucking,  cleaning,  in- 
specting, repair  men,  oilers  etc.). 

(3)  Supplies  used  (oils,  waste,  cleaning,  hardening,  tempering 
and  grinding  supplies,  etc.). 

(4)  Fuel  (oil,  coal,  coke,  gas,  etc.). 

(5)  Small  tools  (of  a  perishable  nature,  such  as  drills,  files,  ream- 
ers, blades,  saws,  etc.). 

(6)  Water, 

(7)  Repairs  to  machinery  and  equipment  (See  special  reference 
"Repairs.") 

(8)  Liability  insurance, 

(9)  Insurance  on  machinery  and  equipment  (when  owned  by  con- 
tractor).    (See  special  reference  "Insurance.") 

(10)  Depreciation  of  m/whinery  and  equipment.  (See  special  ref- 
erence "  Depreciation.") 

(11)  Power  (pro  rata  share  of  power  expense). 

(12)  Building  maintenance  (pro  rata  share  of  building  mainte- 
nance expense).     (See  accounts  Nos.  20  to  25  for  distribution.) 

(13)  Factory  management  and  general  plant  expense  (pro  rata 
share  of  factory  management  and  general  plant  expenses).  (See 
accounts  Nos.  30  to  35  for  distribution.) 

MAINTENANCE  OF  BUILDINGS. 

29.  The  following  accounts  are  recommended  in  connection  with 
the  accounting  for  the  expense  incidental  to  the  maintenance  of  build- 
ings (where  buildings  are  owned  by  contractor)  in  which  are  con- 
tained departments  contributing  to  the  production  of  the  articles 
contracted  for. 

(20)  Labor  (janitors,  watchmen,  elevator  men,  electricians,  mill- 
wrights, etc.). 


? 


8 

(21)  Repairs  to  huUdings  (extraordinary  repairs  become  a  charge 
to  the  reserve  account  established  for  depreciation).  (See  special 
reference  to  *'Eepairs.") 

(22)  Power^  light ^  and  heat, 

'  (23)   Taxes  on  real  estate  and  buildings  {accrued), 

(24)  Insurance  on  buildings  {accrued), 

(25)  Depreciation  of  buildings. 

30.  The  expense  represented  by  accounts  numbered  20  to  25,  consti- 
tutes the  charge  for  maintenance  of  buildings  and  can  be  <listributed 
over  the  departments  contained  therein  based  upon  the  iloor  sjoace 

occupied.    /  .  v...  ,    ^  .,     j^.^jU,-^..,^rM^  r-f  a.^<A.^  ^^^^ 


FACTORY   MANAGEMENT   AND   GENERAL  PLANT  EXPENSE. 

31.  The  following  accounts  are  recommended  in  connection  with 
the  accounting  for  the  necessary  expense  incidental  to  factory  man- 
agement and  general  plant  expense. 

(30)  Salaries  (factory  manager,  superintendents,  i)urchasing 
agent,  cost  accounting,  and  factory-office  staff,  employment  and 
welfare,  etc.). 

^  (31)  Personal  taxes  (applicable  to  the  plant,  and  particularly  to 
the  property  involved  in  the  manufacture  of  the  articles  contracted 
for). 

2      (33)   Undistributed  freight  and  express  and  drayage  (on  incoming 
'   materials  and  supplies  purchased  and  used  on  contracts  for  the 
United  States). 

(34)   General  plant  supplies  and  expense  (stationery,  sanitary  sup- 
plies, telephone,  traveling,  ice,  water,  etc.). 
?     (35)  Safety^  fire  prevention^  etc. 

32.  The  expense  represented  by  accounts  numbered  30  to  35  can  be 
diffused  over  the  factory  departments  based  on  the  pay  roll  (direct 
labor  basis  may  be  used  where  in  effect).  '~ 

APPLICATION  OF  FACTORY  OVERHEAD  EXPENSE  TO  PRODI  CT. 

33.  The  purpose  of  this  accounting  is  to  distribute  the  cost  of  build- 
ing-maintenance  expense    (plant  rental),  factory  ^management  and 

'  general  plant  expense^  and  all  nonproducing  departments  over  the 
producing  departments  and  in  turn  distribute  the  cost  of  producing 
departments  to  the  product  made  therein. 

34.  In  such  cases  where  all  the  facilities  of  the  contractor's  plant 
are  devoted  exclusively  to  the  manufacture  of  articles  contracted  for 
by  the  United  States,  the  distribution  of  overhead  expense  involves 
no  complications  and  will  not  require  the  introduction  of  any  special 
accounting  in  connection  therewith.. 


35.  In  such  cases  where  the  facilities  of  the  contractor's  plant  are 
devoted  in  part  to  the  work  of  others  than  the  United  States  the  basis 
best  adapted  to  the  individual  conditions  or  requirements  of  the 
plant  must  be  recognized  and  used.  There  are  three  methods  in  gen- 
eral use,  viz : 

(1)  As  a  per  cent  on  direct  labor. 

(2)  Direct  labor  hour. 

(3)  Machine  hour. 

36.  Whenever  an  equitable  basis  of  distribution  of  overhead  ex- 
pense is  established  in  any  plant,  it  shall  be  continued  and  used  for 
the  determination  of  cost.  Wherever  no  equitable  basis  or  no  basis 
whatever  exists  the  auditor  representing  the  contracting  officer, 
in  cooperation  with  the  contractor,  shall  establish  a  basis  which  will 
be  subject  in  all  cases  to  the  approval  of  the  contracting  officer  and 
to  later  revision  if  necessary. 

37.  The  following  special  references  are  made  to  certain  elements 
of  expense  that  are  worthy  of  the  attention  of  the  contractor : 


REPAIRS. 

38.  The  cost  of  repairs  considered  as  overhead  expense  are  those 
repairs  and  alterations  which  are  made  currently  to  provide  for  the 
ordinary  and  regular  upkeep  of  the  plant,  the  cost  of  which  is  a 
usual  and  I'airly  consistent  annual  charge.  Repairs  and  alterations: 
of  a  general  nature  which  are  necessary  only  at  intervals  of  more 
than  a  year,  or  replacements  and  unusual  repairs  which  would 
involve  a  significant  increase  in  the  overhead  expense  shall  not  be 
considered  as  expense,  but  shall  apply  against  the  reserve  estab- 
lished to  provide  for  depreciation.  • 


I 


INSURANCE. 


39.  The  contracting  officer  assumes  all  fire  risks  in  connection  with 
the  materials  delivered  by  his  order  to  the  plant  of  the  contractor  and 
all  material  purchased  by  the  contractor  for  the  manufacture  of 
articles  contracted  for  by  the  United  States.  The  contractor  there- 
fore shall  not  assume  as  a  cost  insurance  expense  in  connection  with 
such  material  or  the  direct  labor  or  expenses  thereon  as  specified  in 
the  foregoing,  unless  otherwise  authorized  by  the  contracting  officer. 


DEPRECIATION. 


40.  Depreciation  shall  be  considered  as  an  element  of  expense 
allowable  on  the  property  owned  and  used  by  the  contractor  in  con- 
nection with  the  manufacture  of  the  articles  contracted  for.  For  the 
purposes  of  deteruiination  of  an  equitable  basis  for  depreciation  on 


10 

property  the  contracting  officer  will  be  influenced  by  definitions  set 
forth  m  the  revenue  bill  approved  September  8,  1916,  sc^ction  302, 
together  with  Treasury  Decisions  in  respect  thereto  in  so  far  as  the 
requirements  of  said  revenue  bill  and  Treasury  Decisions  are  appli- 
cable to  and  not  inconsistent  with  the  terms  of  contract  and  special 
conditions  thereto  pertaining. 

[Extract  from  revenue  bill  approved  Sept.  8,  1916.] 

Title  III,  Section  302. 

(/)  A  reasonable  allowance  according  to  the  conditions  peculiar  to  each  con- 
cern, for  amortization  of  the  values  of  buildings  nnd  machinery,  account  being 
taken  of  the  exceptional  depreciation  of  special  plants. 

41.  Regulation  No.  39,  issued  October  24,  1916,  by  the  Treasury 
Department,  No.  2384,  interpreting  depreciation  as  stated  in  a  muni- 
tion-tax law  of  September  8,  1916,  reads  as  follows : 

Art.  XX.  (A)  The  deduction  authorized  on  acct>unt  of  depreciation  relates  to 
the  loss  due  to  use,  wear,  and  tear  of  physical  property,  owned  and  used  by  a 
manufacturer,  but  which  is  not  specially  designe<l  or  installed  for  the  purpose 
of  manufacturing  munitions  or  parts  thereof,  and  which,  without  material 
alteration  and  change,  may  be  used  in  connection  with  any  other  business  in 
Which  the  person  is  or  may  be  hereafter  engaged. 

(B)  The  annual  deduction  on  this  account  will  be  a  reasonable  allOAvance 
determined  upon  the  basis  of  the  cost  and  probable  number  of  years  constitut- 
ing the  life  of  the  property. 

(C)  If  the  same  building  and  machinery  or  other  equipment  are  used  coinci- 
dentally  for  the  purposes  other  than  the  manufacture  of  munitions  or  parts 
thereof,  then  the  amount  deducible  from  the  gross  income  returned  for  the 
purpose  of  this  title  on  account  of  depreciation  will  be  apportioned  in  accord- 
ance with  the  rule  hereinbefore  set  out  for  apportioning  running  exi»enseH.  and 
the  deduction  from  the  gross  income  contemplated  by  this  title  will  be  made 
accordingly. 

Art.  XXI.  (A)  Section  802  of  this  title  authorizes  a  deduction  to  meet  the 
conditions  peculiar  to  each  concern  and  has  for  its  purpose  the  amortization 
of  the  values  of  buildings  and  machinery  constituting  special  plants  which 
will,  except  for  salvage,  have  no  substantial  value  to  the  manufacturer  when 
the  contracts  executed  or  to  be  executed  for  the  manufacture  of  munitions  or 
parts  thereof  have  been  fully  performed. 

(B)  The  deduction  authorized  on  this  account  relates  to  property  (buildings 
machinery,  and  equipment)  especially  constructed  or  installed  for  use  in  the 
manufacture  of  munitions  or  parts  thereof  and  which,  when  no  longer  useful 
for  this  purpose,  can  not,  without  material  alteration  or  change.  If  at  all  be 
used  for  any  other  purpose,  the  life  of  which  property  is  substantially  coinci- 
dent with  the  life  of  the  contracts. 

(C)  The  annual  allowance  to  be  deducted  on  this  account  will  be  determined 
by  estimating  the  probable  namber  of  years  the  i^roperty  will  be  used  in  the 
manufacture  of  munitions  or  parts,  and  by  dividing  the  cost  of  such  property 
less  estimated  salvage,  by  such  probable  number  of  years.  The  quotient  thus 
obtained  will  measure  the  amount  to  be  deducted  each  year  on  account  of 
amortization,  until  the  cost  of  the  property  has  been  extinguished  Or  the 
cost  of  the  property  may  be  amortized  on  the  basis  .»f  the  quantity  of  munitions 


11 

or  parts  thereof  manufactured  under  contracts  in  connection  with  the  fulfill- 
ment of  which  the  buildings  and  machinery  or  equipment  were  specially  con- 
structed or  installed. 

(D)  Neither  the  depreciation  nor  the  amortization  deduction  allowable  in 
the  return  made  for  the  purpose  of  this  title  will  relate  to  property  used  in 
connection  with  any  other  business  carried  on  by  the  manufacturer.  Amortiza- 
tion applies  only  and  particularly  to  those  special  plants  and  equipment  whose 
life  and  value,  except  salvage,  will  terminate  with  the  end  of  the  business  for 
which  they  were  erected  and  equipped.  It  is  to  be  differentiated  from  deprecia- 
tion in  that  depreciation  relates  to  property  whose  life  and  value  is  not  depend- 
ent upon  or  materially  affected  by  its  use  in  tlie  manufacture  of  munitions  or 
parts  thereof. 

4.  Administrative  and  General  Expense. 

42.  Administrative  and  general  expense  consists  of  that  expense 
necessary  and  incidental  to  the  administration  and  general  office 
activities  of  that  portion  of  the  contractor's  business  that  is  devoted 
to  and  necessary  to  the  fulfillment  of  contracts  with  the  United 
States. 

43.  It  is  definitely  understood  that  there  shall  be  excluded  from  the 
administrative  and  general  expense  all  expense  incidental  to  the  pro- 
motion of  or  making  sales,  advertising,  losses  on  bad  debts,  contribu- 
tions, subscriptions,  and  expenses  of  similar  nature.  The  contractor 
shall  maintain  in  a  separate  classification  or  division  of  accounts  all 
salaries  and  expenses  incidental  to  the  selling  department  of  his 
business. 

44.  The  following  accounts  are  recommended  in  connection  with 
the  accounting  for  the  expenses  incidental  to  the  Administrative  and 
6^6n€mZ«  activities  of  the  business  that  pertain  to  contracts  Avith  the 
United  States : 

(40)  Salaries  of  executives. 

(41)  S(daries  of  office  employees  (exclusive  of  sales  and  advertis- 
ing department  employees). 

(42)  Salaries  of  engineering  department  (engineers,  draftsmen, 
and  supplies  used  in  connection  with  work  on  contracts  for  the 
United  States). 

(43)  Taxes  (excepting  Federal  taxes  and  taxes  included  in  ac- 
count No.  23  under  maintenance  of  buildings  and  account  No.  31 
under  factory  management  and  general  factory  expenses). 

(44)  Stationery  and  supplies  (for  office  use). 

(45)  Postage^  telephone^  and  telegraph. 

(46)  Traveling. 

(47)  Incidental  expenses  (not  provided  for  in  the  foregoing). 

45.  In  such  cases  where  a  part  of  the  plant  of  the  contractor  is  en- 
gaged in  the  manufacture  of  articles  for  others  than  the  United 
States,  the  expense  represented  in  expense  accounts  Nos.  40  to  47, 
shall  be  prorated  either  on  a  basis  of  the  total  factory  cost  (total 
factory  cost  being  made  up  of  the  sum  of  all  direct  labor,  direct  mo- 


12 

terials,  and  factory  overhead  expense)  or  on  a  basis  of  the  direct 
labor. 

46.  Where  the  entire  product  of  the  plant  is  devoted  to  the  oom- 
pletion  of  contracts  for  the  United  States  then  shall  the  total  of 
administrative  and  general  expense  become  a  charge  to  contracts  of 
the  United  States. 

47.  Interest  on  investment  or  on  bonded  debt  shall  not  be  consid- 
ered as  an  expense  entering  into  the  cost  of  contracts  for  the  United 
States,  but  the  contracting  officer  will  reimburse  the  contractor  for 
interest  paid  by  it  on  money  borrowed  to  finance  the  purchase  of  ma- 
terials necessary  to  complete  contracts  for  the  United  State.  Interest 
cost  will  not  be  considered  as  a  cost  to  the  contractor  upon  which 
profit  is  to  be  calculated. 

Ed.  June  25-17—2,500. 

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